The Wall Street Journal - 02.08.2019

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THE WALL STREET JOURNAL. ***** Friday, August 2, 2019 |B11


MARKETS


AUCTIONRESULTS
Here are the results of Thursday's Treasury auctions.
All bids are awarded at a single price at the market-
clearing yield. Rates are determined by the difference
between that price and the face value.
FOUR-WEEK BILLS
Applications $111,377,251,700
Accepted bids $35,000,051,700
" noncompetitively $1,471,539,700
" foreign noncompetitively $0
Auction price (rate) 99.838222
(2.080%)
Coupon equivalent 2.118%
Bids at clearing yield accepted 17.97%
Cusip number 912796VT3
The bills, dated Aug. 6, 2019, mature on Sept. 3, 2019.
EIGHT-WEEK BILLS
Applications $93,320,944,800
Accepted bids $35,000,232,300
" noncompetitively $271,504,800
" foreign noncompetitively $100,000,000
Auction price (rate) 99.673333
(2.100%)
Coupon equivalent 2.142%
Bids at clearing yield accepted 17.39%
Cusip number 912796VX4
The bills, dated Aug. 6, 2019, mature on Oct. 1, 2019.


The yield on the 10-year
U.S. Treasury note recorded its
largest one-day decline in
more than a year, falling to its
lowest level since the 2016
presidential election after
President Trump announced
new tariffs on Chinese imports.
The 10-year yield, which
falls as bond
prices rise, set-
tled at 1.894%,
down from
2.034% Wednesday. That is its
lowest close since 1.867% on
Nov. 8, 2016.
A benchmark that helps set
borrowing costs throughout
the economy, the yield fell
sharply Thursday afternoon
after Mr. Trump’s announce-
ment of 10% tariffs on an addi-
tional $300 billion of Chinese
imports.
Bond yields had begun de-
clining early in the session, a
day after the Federal Reserve
cut interest rates while pro-
viding mixed signals about the
course of monetary policy.
Weak economic data and a
decline in oil prices then
boosted concerns about the
outlook for global growth and
the Fed’s ability to stimulate
inflation.
Bond yields fell further af-
ter the Institute for Supply
Management said U.S. manu-
facturing activity slowed in
July to the lowest since before
the 2016 election, a slide that
accelerated after the 10-year
yield dropped below 2%.
“Breaking through 2%
seems to have brought in some
buyers,” said Don Ellenberger,
head of multisector strategies
at Federated Investors.
The 10-year yield has
erased almost all of its rise
following the 2016 presidential
election, when investors bet
that tax cuts and infrastruc-
ture spending would stimulate
growth and inflation. The
yield reached a multiyear high
of 3.232% in November as in-
vestors bet that economic
growth, fueled by the corpo-
rate tax cuts, would continue
and that the Fed would con-
tinue raising rates to prevent
the economy from overheating.


BYDANIELKRUGER


Bond Yield


Hits Lowest


Level Since


2016 Vote


CREDIT
MARKETS


Treasury Sets Debt Sales


The U.S. Treasury Department
will auction $162 billion in securi-
ties next week, comprising $123
billion in new debt and $39 billion
in previously sold debt. Details
(all with minimum denominations
of $100):
Monday:$39 billion in 13-
week bills, a reopening of an is-
sue first sold on Nov. 8, 2018,
maturing Nov. 7, 2019. Cusip
number: 912796RM3.
Also, $39 billion in 26-week
bills, dated Aug. 8, 2019, matur-
ing Feb. 6, 2020. Cusip number:
912796TE9.
Noncompetitive tenders for
both issues must be received by
11 a.m. EDT Monday and com-
petitive tenders, by 11:30 a.m.
Tuesday:$38 billion in
three-year notes, dated Aug. 15,
2019, maturing Aug. 15, 2022.
Cusip number: 912828YA2.
Noncompetitive tenders must
be received by noon Tuesday;
competitive tenders, by 1 p.m.
Wednesday:$27 billion in
10-year notes, dated Aug. 15,
2019, maturing Aug. 15, 2029.
Cusip number: 912828YB0:
Noncompetitive tenders must
be received by noon Wednesday;
competitive tenders, by 1 p.m.
Thursday:$19 billion in 30-
year bonds, dated Aug. 15, 2019,
maturing Aug. 15, 2049. Cusip
number: 912810SJ8.
Noncompetitive tenders must
be received by noon Thursday;
competitive tenders, by 1 p.m.


in place of their usual lattes
and Americanos.
With prices approaching
their lowest level in more than
a decade, analysts don’t expect
them to fall much further.
One source of optimism for
coffee growers and investors
can be found in the currency
market. The Brazilian real
strengthened by 1.9% against
the dollar in July, partly be-
cause the U.S. currency weak-

ened ahead of the Federal Re-
serve’s interest-rate cut on
Wednesday.
The real is expected to rally
further as Brazilian President
Jair Bolsonaro’s economic pro-
gram progresses through the
country’s congress. A stronger
real generally boosts the dollar
price of coffee on international
markets.
Steve Pollard, a coffee ana-
lyst at London-based brokerage

Marex Spectron, expects prices
to rise to more sustainable lev-
els for farmers in Central
America.
He said growers in Hondu-
ras and Nicaragua are skimping
on fertilizer and that prices
will have to recover to between
$1.15 and $1.20 a pound to in-
centivize them to keep produc-
ing.
—Pat Minczeski
contributed to this article.

crops led to a price spike.
When it became clear that
those concerns were un-
founded, traders started to bet
that prices would fall again.
Now, funds are building up
their short bets, or wagers that
prices will fall, and are “whip-
ping the market down,” said
Kona Haque, head of research
at commodity trading house
ED&F Man.
By Ms. Haque’s estimates,
the frost endangered up to 1
million 60-kilogram bags of
Brazilian coffee—a fraction of a
harvest that the U.S. Depart-
ment of Agriculture expects to
be as large as 59.3 million bags.
Such an output would be
enormous for what is supposed
to be the weaker leg in Brazil’s
two-year production cycle.
The amount would also be
the second-largest crop ever,
behind last year’s record 64.8
million bags.
“For now, the market looks a
bit grim,” Ms. Haque said, add-
ing that roasters in Europe,
Japan and the U.S. don’t buy
much coffee during the sum-
mer months.
Soaring temperatures in the
U.S. and Europe likely added to
pressure on prices. As tempera-
tures have reached 100 degrees
Fahrenheit in London and New
York, said Roger Bradshaw of
Soft Commodity Consulting,
consumers are likely to have
cracked open colder soft drinks

Coffee traders endured the
market’s worst month in more
than two years in July, as
prices fell victim to benign
growing conditions in Brazil
and scorching temperatures in
the U.S. and Europe.
The price of arabica, the
premium variety of bean grown
mainly in Brazil, slumped 9% to
$1 a pound last month on the
Interconti-
nental Ex-
change in
New York, the biggest monthly
drop since December 2016. In
May, arabica fell to as low as
88 cents, its cheapest price in
more than a decade.
Coffee prices have consis-
tently fallen since late 2016
amid booming supply in Brazil
and impoverishing farmers in
Central America, which has con-
tributed to high levels of migra-
tion to the southern U.S. border.
Growers in Brazil, the
world’s largest coffee producer,
and other countries recently
discussed ways they could bol-
ster the market and the in-
comes of farmers who depend
on it.
Driving the current decline
is the realization by traders
that an outbreak of frost in
Brazil left the country’s coffee
crop largely unscathed.
In late June, worries that a
cold snap could damage coffee

BYJOEWALLACE

Coffee Prices


Sink Amid Bean


Glut in Brazil


COMMODITIES


Futureshavetumbled,promptingsometraderstobetthatpriceswillfallfurther.


Coffeefuturesprice

Sources: FactSet (price, net bets); U.S. Department of Agriculture (harvest)

*For the marketing year ending in the date labeled.

$3.00

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

a pound

2010 ’15 ’19

Netspeculativepositionsin
coffeefuturesandoptions
0

–125,000

–100,000

–75,000

–50,000

–25,000

contracts

2018 ’19

SizeofBrazil'scoffeeharvest*

60

0

20

40

million 60-kg bags

2011 ’15 ’20
FORECAST

PRICES WILL FALL

Investors reined in long-
standing wagers that the U.S.
economy will continue outpac-
ing the rest of the world, send-
ing oil to its worst day in
nearly 4½ years and dragging
down stocks and bond yields.
Thursday was one of the
most volatile days on Wall
Street since last winter’s selloff,
with the Dow Jones Industrial
Average swinging in a 627-
point range to erase an early
rally and close down 1%. The
yield on the benchmark 10-year
U.S. Treasury
note, which
helps set bor-
rowing costs on
everything from mortgages to
corporate debt, tumbled to its
lowest level since the 2016
presidential election.
After hopes for further in-
terest-rate cuts supported most
markets early in the trading
session, President Trump’s
midday announcement of 10%
tariffs on an additional $300
billion of Chinese imports
dragged down major indexes,
bond yields and commodities in
tandem. Investors said the lat-
est salvo in the U.S.-China trade
spat triggered fresh fears that
higher tariffs will slow business
investment and economic activ-
ity.
Following the Federal Re-
serve’s first rate cut in more
than a decade, those worries
forced some investors to ques-
tion how long the U.S. economy

can withstand a deepening
slowdown overseas, traders
said.
“The past two days have wo-
ken people up,” said Mohit Ba-
jaj, director of exchange-traded
fund trading solutions at Wal-
lachBeth Capital. “Eventually
something has got to give, and
there’s going to be a little bit
more of a slowdown going into
the rest of the year.”
Mr. Bajaj said many inves-
tors were trimming positions in
riskier assets such as stocks
and commodities and favoring
the safety of assets such as
bonds and gold that tend to

hold their value when markets
turn rocky.
The Dow industrials ended
the day down 280.85 points at
26583.42, falling at least 1% in
consecutive sessions for the
first time this year after rising
as much as 1.2% earlier in the
day. The S&P 500 fell 26.82
points, or 0.9%, to 2953.56. De-
spite recent losses, both in-
dexes are within 2.8% of their
all-time highs.
The yield on the 10-year U.S.
Treasury note fell to 1.894%
from 2.034% a day earlier, post-
ing a fresh multiyear low. Bond
yields decline as prices rise.

The 10-year yield has retraced
almost all of a climb that began
after the 2016 election, when
investors bet that Trump ad-
ministration policies such as
tax cuts and government
spending would spur growth.
Its slide reflects uncertainty
about future rate cuts as the
world’s central banks aim to
stabilize growth. Fed Chairman
Jerome Powell said during a
45-minute press conference
Wednesday that it was difficult
to provide guidance about fu-
ture plans for rates in part be-
cause of uncertainty over trade
policy. In another warning sign,

the yield on the three-month
Treasury rose well above the
10-year yield. Short-term yields
have climbed above longer-
term ones before the last sev-
eral recessions, a phenomenon
known as an inverted yield
curve, though the time between
the inversion and economic
growth turning negative has
varied.
In another sign of economic
worry, U.S. crude tumbled 7.9%
to $53.95 a barrel for its big-
gest drop since February 2015.
Traders are wary that a slow-
ing economy will soften de-
mand for crude, leaving the
world with another glut. Those
fears have sent prices down
nearly 20% from their April
peaks. Shares of oil producers
slid, withWhiting Petroleum
andConcho Resourcestum-
bling 39% and 22%, respec-
tively, after posting disappoint-
ing second-quarter results.
In Asia early Friday, stocks
fell, the Chinese yuan weakened
and bonds and haven curren-
cies rallied. Japan’s Nikkei
Stock Average and Hong Kong’s
Hang Seng Index were down
more than 2% and the Shanghai
Composite was down 1.5%.
In currency markets in Asia
early Friday, the yen gained
0.3% at 107.06 to the dollar. The
Chinese yuan depreciated
against the greenback, with the
currency in the offshore market
hitting 6.8972 a dollar, its low-
est level since November.
—Steven Russolillo
and Joanne Chiu
contributed to this article.

BYAMRITHRAMKUMAR
ANDJESSICAMENTON

New Tariffs Stagger Stocks, Oil Prices


EnergysharesledtheS&PlowerThursday.

Share-priceandindexperformance

Source: FactSet

10

–40

–30

–20

–10

0

%

Wednesday Thursday

Royal
DutchShell

Whiting
Petroleum

Concho
Resources

S&P500

THURSDAY’S
MARKETS

sales dropped $161 million.
The U.S. agricultural sector
for the past year has struggled
to navigate trade disputes pit-
ting the U.S. against some of
the biggest food importers, in-
cluding China and Mexico.
Tariffs on U.S. farm goods
forced exporters to seek new
markets, and cut into prices
for farmers, leaving them with
less to spend on seeds and
chemicals. Then came the

spring rains, capping the wet-
test 12-month period on re-
cord for the continental U.S.
Repeated storms left fields too
wet to plant, forcing farmers
to decide whether to gamble
on late-planted crops, switch-
ing to less-profitable alterna-
tives or filing insurance
claims.
Corteva said costs in its lat-
est quarter climbed as farmers
replanted crops after rain

swamped their fields, an ex-
pense often covered by seed
companies, while farmers
switched seed orders to faster-
maturing corn and lower-
priced soybeans after storms
forced later planting. With
fewer acres planted, rival seed
makers cut prices and Corteva
followed suit, executives said.
Corteva said it now expects
2019 profit to be $250 million
to $300 million lower than its
previous forecast. “The events
that transpired in North
America this year are without
precedent,” Mr. Collins said.
Bayer, the world’s biggest
seed-and-pesticide supplier
following its 2018 acquisition
of Monsanto, said Tuesday
that the wet U.S. spring could
put its 2019 profit goal out of
reach.
ADM, one of the world’s
biggest grain processors and
exporters, said the spring del-
uge added $65 million in costs
to its most recent quarter.
High river waters slowed
ADM’s barges, added costs for
its grain-shipping business

and made U.S. corn more ex-
pensive for foreign buyers.
“We couldn’t deliver,” ADM
CEO Juan Luciano said Thurs-
day on a conference call.
In hard-hit stretches of the
Midwest where weeds now
reign over farm fields, grain
companies like ADM, Bunge
andCargillInc. have offered
lofty prices for grain to secure
supply ahead of an uncertain
harvest. Mr. Luciano said
tighter supplies already are
boosting costs for major grain
buyers like food processors
and livestock producers.
Ingredion, which produces
high-fructose corn syrup,
starches and other staples,
said Thursday that rising corn
costs, partly driven by
weather problems, cut its
North American profit by $29
million so far this year. The
likelihood of higher corn
prices ahead led the company
to cut its 2019 profit projec-
tion. Chief Executive Jim Zal-
lie said Ingredion was working
to pass rising grain costs on to
its customers.

Record-breaking rains con-
tinue to vex the agricultural
industry, adding hundreds of
millions of dollars in costs for
grain traders and crop-seed
suppliers.
Millions of corn and soy-
bean acres were left unplanted
after persistent springtime
storms, leading to product re-
turns and swelling inventories
for seed and pesticide makers
including CortevaInc. and
BayerAG. Agricultural ship-
pers and processorsArcher
Daniels MidlandCo.,Bunge
Ltd. andIngredionInc. have
contended with overflowing
rivers that shut plants and
raised grain prices across the
Midwest.
“It’s difficult to overstate
how challenging this year has
been,” James Collins, chief ex-
ecutive of Corteva, said
Thursday. Corteva said the
bad weather drove quarterly
profit in its seed business
down 50%, as seed sales fell
by $180 million and pesticide

BYJACOBBUNGE

Wet Weather Poses Costly Challenge for Agribusinesses


Amid a record rainy season, grain bins were damaged in Nebraska.

SCOTT OLSON/GETTY IMAGES
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